The German Electronic Securities Act (Gesetz über elektronische Wertpapiere – eWpG) has made it possible to issue securities through entry in an electronic securities register without the requirement for a physical certificate. This register can be operated on the basis of DLT systems (“crypto securities register”, section 16 of the eWpG). Electronic securities that are issued through entry in a crypto securities register are referred to as crypto securities (section 4 (3) of the eWpG).
In simple terms, a crypto securities register is therefore a register for electronic securities based on distributed ledger technology within the meaning of section 16 of the eWpG. The register is used for the initial issuance of electronic securities (see also information on electronic securities in crypto securities registers).
Crypto securities registrars ensure the proper functioning of the crypto securities register. The crypto securities registrar may be the issuer, or may be operating on behalf of the issuer. Crypto securities registrars are subject to specific supervisory requirements. Under section 1 (1a) sentence 2 no. 8 of the German Banking Act (Kreditwesengesetz – KWG), crypto securities registration is a financial service requiring authorisation, and it is subject to requirements regarding business organisation and the conduct of business. These requirements are contained in the KWG, the eWPG, the Regulation on Requirements for Electronic Securities Registers and in the Regulation on Crypto Fund Units (KryptoFAV).
Frequently Asked Questions:
Is authorisation required for crypto custody business?
Crypto custody business was incorporated into the KWG as a new financial service by the German Act Implementing the Amending Directive on the Fourth EU Anti-Money Laundering Directive (Gesetz zur Umsetzung der Änderungsrichtlinie zur Vierten EU-Geldwäscherichtlinie). Since the act came into force on 1 January 2020, companies wishing to provide this service have required authorisation from BaFin. The key elements of the authorisation procedure for crypto custody business and a summary of the essential requirements for granting authorisation are set out on a special info page on the BaFin website.
Do service providers require authorisation from BaFin in order to perform crypto securities registration services?
Under the German Act on the Introduction of Electronic Securities (Gesetz zur Einführung von elektronischen Wertpapieren) crypto custody business was incorporated into the KWG as a new financial service. Since the act came into force on 10 June 2021, companies wishing to provide this service have required authorisation from BaFin. Information about authorisation for operating a crypto securities register can be found in a Guidance Notice issued by BaFin.
Are electronic securities also subject to a prospectus requirement in Germany?
In accordance with the prospectus requirement, a prospectus must be drawn up and published before securities can be offered to the public or admitted to trading on a regulated market. The securities prospectus must contain all material information on the issuer and the securities being offered. It is meant to enable investors to obtain an accurate picture of the offer so that they can make their investment decision accordingly. Information about the prospectus requirement can be found on the BaFin website and in an advisory letter on prospectus and authorisation requirements in connection with the issuance of crypto tokens.
What is the background to the eWPG?
The development of a blockchain strategy to support the digital transformation of the economy was announced in the coalition agreement signed between the CDU/CSU and the SPD to form the government for the 19th legislative period of the German parliament (Bundestag) in 2018. A key measure contained in the Blockchain strategy subsequently issued by the federal government is the inclusion of electronic securities in German legislation. In 2019, the Federal Ministry of Finance (Bundesministerium für Finanzen – BMF) and the Federal Ministry of Justice and Consumer Protection (Bundesministerium für Justiz und Verbraucherschutz – BMJV) agreed on a Key-issues paper on the regulatory treatment of electronic securities and crypto tokens. On 3 June 2021, the Act on the Introduction of Electronic Securities was published in the Federal Law Gazette.
